Britain's largest shares drifted down on low volumes led by Diageo and with sentiment hit by a survey showing a sharp decline in British consumer confidence and by buoyant sterling following strong house price data.
UK equities are already falling off ahead of taking an extended weekend in the U.S., and the market is taking any excuse to take a profit, overreacting to any release of bad news, a trader said.
Shares in Diageo, the world's biggest alcoholic drinks group, was down 3.2 percent, heading the list of FTSE 100 losers as expectations faded the group might upgrade its current year targets.
Diageo had a good run-up to its results so we're seeing an element of profit-taking today because the results were really in line with expectations, if nothing exceptional, said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.
The market's mood was dented by GfK NOP's monthly consumer confidence barometer which fell to its lowest reading since December 2005, traders said.
Adding to the downside was the sharp rise in British house prices shown by the Nationwide Building Society, which raised expectations for an interest rate hike this year and sent sterling to its highest since August 2004.
By 1057 GMT, the FTSE 100 index had reached 5,918, down 11.3 points, or 0.2 percent.
The market is drifting lower in light volumes. The strong retail sales and mortgage figures may mean some are factoring in another interest rate rise, perhaps in November, said Hunter.
The European Central Bank is expected to hold interest rates steady at 3 percent at its meeting later in the session.
Leading the FTSE 100 gainers Carnival jumped 4.6 percent on expectations of further consolidation in the sector. U.S.-Norwegian Royal Caribbean Cruises has agreed to acquire Spain's biggest cruise and tour operator, Pullmantur S.A.
A lot of people were talking up Carnival first thing this morning. The valuation given to the Spanish operator means Carnival could be revalued, one trader said. The stock was also supported by a sector note from Morgan Stanley saying it remains positive on the stock despite reducing its forecast revenue yields, as well as the recent fall in crude oil prices.
Miners were among the largest gainers, helped by a Lehman Brothers research note saying that they had increased their forecasts for nickel and zinc prices in 2007 and, as a result, the miners most exposed to them will benefit. Antofagasta was up 2.3 percent, followed by Vedanta, up 0.9 percent. Copper edged higher in London with all eyes on the world's largest copper mine Escondida, where a breakthrough in talks between the union and management could lead to an end of a 25-day long strike later on Thursday.
Among utilities, Scottish Power drifted back after early gains on the back of speculation that German utility RWE is looking to bid for the UK firm, traders said.
BP was up 0.8 percent and Royal Dutch Shell was steady as U.S. oil prices rose 37 cents to $70.55 a barrel.
Shares in aircraft maintenance and materials maker BBA Group fell 7.7 percent after it reported a 5-percent fall in mid-year underlying operating profit and advised investors it would lower future dividend payments.
(additional reporting by Paul Marriott)